Download Study Questions (with Answers) Lecture 5 Tariffs Part 1: Multiple

Econ 340
Winter Term 2017
Study Questions (with Answers)
Alan Deardorff
Tariffs
Page 1 of 6
Study Questions
(with Answers)
Lecture 5
Tariffs
Part 1: Multiple Choice
Select the best answer of those given.
1.
A specific tariff is
a.
b.
c.
Any tax on a particular imported good (as opposed to one on all imports).
An import tax that must be paid in kind (giving the government the good itself).
A requirement to pay the government a specified fraction of the monetary value
of an imported good.
d. A tax on imports defined as an amount of currency per unit of the good.
e. The revenue that the government earns by auctioning off import quotas.
Ans:
d
2. A tariff on imports benefits domestic producers of the imported good because
a.
b.
c.
d.
e.
They get the tariff revenue.
It raises the price for which they can sell their product on the domestic market.
It prevents imports from rising above a specified quantity.
It reduces their producer surplus, making them more efficient.
All of the above.
Ans:
b
3. When a large country levies a tariff on imports
a.
b.
c.
d.
e.
The world price falls.
Demanders of the good on the domestic market are hurt
Foreigners are hurt.
The domestic price rises by less than the tariff.
All of the above.
Econ 340
Winter Term 2017
Study Questions (with Answers)
Ans:
Alan Deardorff
Tariffs
Page 2 of 6
e
4. Starting from free trade, when a tariff is applied to imports in a small country, which
of the following increase?
I. Domestic output
II. Domestic demand
III. Domestic price
IV. Tariff revenue
V. Quantity of imports
a.
b.
c.
d.
e.
I and III only
II, and IV only
I, III, and IV only
All but V
II and V only
Ans:
c
5. According to the assigned article by Feenstra
a.
The efficiency costs of U.S. protectionism are quite small, less than one percent
of U.S. GDP.
The rents from U.S. quantitative restrictions are much smaller than the
deadweight losses that they cause.
The deadweight loss due to protection consists primarily of lost quota rents.
The deadweight loss due to U.S. protection is large, more than 7% of U.S. GDP.
The losses to foreigners due to U.S. protection are negligible, and can be ignored
in estimating the global effects of U.S. trade policies.
b.
c.
d.
e.
Ans:
a
6. Suppose that the tariff on shirts is 20% while the tariff on the cloth used to make the
shirts is also 20% and there is no tariff on any of the inputs needed to produce cloth.
The tariff on cloth is now reduced to 10%. Which of the following, if any, is not
true? (Answer e if all of a-d are true.)
a.
b.
c.
d.
e.
The nominal rate of protection on cloth is reduced.
The effective rate of protection on cloth is reduced.
The nominal rate of protection on shirts is unchanged.
The effective rate of protection on shirts is unchanged.
None. All of the above are true.
Ans:
d (See Gerber for this, though it is touched on in just the last slide of the
lecture)
Econ 340
Winter Term 2017
Study Questions (with Answers)
Alan Deardorff
Tariffs
Page 3 of 6
7. Which of the following refers to the fact that a large country can benefit by levying a
tariff?
a.
b.
c.
d.
e.
The “optimal tariff”
The “terms of trade effect of a tariff”
The “monopoly effect of a tariff”
All of the above
None of the above
Ans:
d
8. The WTO’s Agreement on Textiles and Clothing promised
a.
b.
c.
d.
e.
To prevent job losses in these industries in developed countries.
To phase out all quotas on textiles and apparel by Dec. 31, 2004.
To eliminate tariffs on these products in the next round of trade negotiations.
To help developing countries escape from these dead-end industries.
To assign feasible export targets to each developing country.
Ans:
b (see article by Schavey)
Econ 340
Winter Term 2017
Study Questions (with Answers)
Alan Deardorff
Tariffs
Page 4 of 6
Part II: Short Answer
Answer in the space provided.
1.
About how high are U.S. tariffs today? Answer this by checking one box in each
row of the following table, indicating which of the ranges best describes the tariffs or
tariff averages indicated.
0 - 10%
Average tariff on
all US imports
US tariff on cars
40 - 100%
100 - 500%
ü
ü
US tariff on
trucks
US tariffs on
textiles
2.
10 - 40%
ü
ü
The figure at the right shows a
country’s domestic supply and demand
curves, S and D, for a good, as well as
the world price of the good, Pw, that it
faces, as a small country, on the world
market. Initially, however, the country
is not trading freely, but is instead
imposing a tariff on imports of this
good that causes the domestic price to
€
be Pd, as shown.
€
P
S
Pa
a b
Pd
c
Pw
€
d
e f
g
€€ i j k l
D
€ € €h €
Ans: At intersection of S and D
€
O
Q1 Q2 Q3 Q4 Q5
€
Identify the size of the tariff in the
€ € € €
figure, and label it t.
€
€
Ans: Pd – Pw
a. Identify the autarky price in the
€
figure, and label it Pa.
b.
€
€ € € € €
€
Q
Econ 340
Winter Term 2017
Study Questions (with Answers)
Alan Deardorff
Tariffs
Page 5 of 6
c. Various quantities are labeled on the axes as Q1, Q2, …, etc., while several areas
in the figure have been labeled a, b, c, … etc. Use these labels to identify the
following in the blanks provided:
3.
The quantity produced in autarky…………………
Q3
The quantity produced domestically with the tariff
Q2
The change in quantity demanded if the tariff is
removed………………………………………
Q5-Q4
The value (price times quantity) of imports in the
presence of the tariff, valued at the world price
j+k
The tariff revenue…………………………………
e+f
The loss of producer surplus when the tariff is
removed……………………………………….
c
The gain in consumer surplus when the tariff is
removed………………………………………
c+d+e+f+g
The dead-weight loss due to the tariff…………….
d+g
Define the following terms:
a. Specific Tariff
Ans: A tax on imports, defined at an amount of currency
per unit of the good.
b. Dead Weight Loss
Ans: Pure economic loss, with no corresponding gain
elsewhere in the economy.
c. Collective Action
Ans: An action by a group of individuals that will benefit
them all by small amounts, and that none
individually has an incentive to undertake.
d. Consumer Surplus
Ans: The excess value that consumers would be willing to
pay above what they are actually paying for a good.
Econ 340
Winter Term 2017
Study Questions (with Answers)
4.
Alan Deardorff
Tariffs
Page 6 of 6
Compare the effects of a tariff of given size in a small country and a large country by
filling in the blanks below with “more than,” “less than,” or “the same amount as.”
(Assume that the countries you are comparing have the same domestic supply and
demand curves and face the same initial world price.)
a.
Domestic price rises in the large
country by
less than
in the small
country
b.
Domestic quantity supplied rises
in the large country by
less than
in the small
country
c.
Quantity imported falls in the
large country by
less than
in the small
country
d.
Tariff revenue rises in the large
country by
more than
in the small
country
e.
Consumer surplus falls in the
large country by
less than
in the small
country